"The center of gravity of terrorism has shifted from Al-Qaeda to Taliban," he told members of the European Parliament in Brussels. "This is a new element which has emerged -- a more dangerous element because it has roots in the people. Al-Qaeda did not have roots in the people, but Taliban are more organized, they have roots in the people."

Musharraf said that Taliban fighters had regrouped in southern Afghanistan and that they are being commanded from there by the former Taliban ruler, Mullah Omar.

The Pakistani leader also rejected criticism that Pakistan is not doing enough to fight terrorism and extremism in his country.

On Kashmir, Musharraf said he was optimistic about the chances for finding a solution to the decades-old dispute over the divided region. He said Pakistan's relations with India "have never been this good."